Free trade zones and money laundering

As of November 2026: FATF listing dates are as stated in FATF's October 2023 and February 2024 statements: Panama's deficiencies were identified in June 2019 and it left increased monitoring in October 2023; the UAE's were identified in February 2022 and it left in February 2024. Findings on the Colón Free Zone and the UAE's zones reflect mutual evaluations from 2018 and 2020, and later reforms are not assessed here. FATF's 2010 report is described from FATF's summary page and the OECD/EUIPO 2018 study's account of it. The OECD certification status is as stated on the OECD instrument page (2025). No zone is described here as guilty of anything; the Colón case concerns two companies that pleaded guilty, not the zone.

Also called: free zones · free trade zone abuse · FTZ laundering · special economic zones · free ports and zones.

What is a free trade zone, and why does it matter for laundering?

A free trade zone (FTZ) is a designated, usually fenced-off area, often at a port or airport, where goods enter without paying the import duties that would apply elsewhere in the country. Different countries call them free zones, export processing zones, special economic zones or freeports. The OECD and the EU Intellectual Property Office, citing International Labour Organization figures, count more than 3,500 zones in 130 economies, employing around 66 million people. Most of that activity is ordinary manufacturing, warehousing and re-export.

The laundering problem is narrower. Because zones are built to cut red tape, they can also cut the checks that would catch a bad shipment, a bad company or a bad payment. The OECD’s 2018 study said lightly regulated zones attract people involved in counterfeiting, smuggling and money laundering because they offer good infrastructure and limited oversight. FATF reached the same view in 2010, saying the absence of strict regulation that benefits legitimate business also makes zones attractive to illicit actors.

This page covers what is specific to zones. The pricing tricks themselves, such as over- and under-invoicing, are explained on the trade based money laundering page and are not repeated here.

How does laundering through a free trade zone work?

Authorities describe the same pattern across several reports. This is a summary of documented weak points, not a guide.

1. A company is formed inside the zone. The OECD, summarising FATF’s 2010 findings, reports that many zone authorities run their own company formation services, advertise the ease of setting up, and ask for little or no ownership information.
2. Goods arrive with minimal customs formalities. In some countries zones are treated as outside the national customs territory, so goods enter and leave with few controls. The European Commission’s 2019 proposal for the OECD Recommendation noted that even where customs have legal power in a zone, enforcement can be weak.
3. The goods are handled and re-papered. Zones allow storage, repackaging and relabelling. The OECD found that some zones are key transshipment points where goods are repackaged or relabelled to hide where they came from, and then enter the legitimate supply chain.
4. Ownership and paperwork change hands. Panama’s 2018 mutual evaluation noted that zone rules allow “offshore” trade operations in which the goods never circulate through the country, which makes fictitious trades and mis-invoicing easier to run on paper.
5. Payment settles as ordinary trade. The invoice is paid through a bank, or cash is used in the zone itself. The European Commission’s proposal said bulk cash can be introduced into a zone by declaring it is for retail purchases there, with no official check of its end use.

Why do zones add cover?

Four features come up again and again in official reports.

Light-touch supervision. The OECD and the European Commission both describe a common misunderstanding: that firms inside a zone sit outside the country’s jurisdiction, so customs and police cannot enter. The Commission added that even where authorities do understand their powers, the incentive to monitor a zone’s activity and transshipments is low unless enough goods leak into the domestic market. When a zone is privately run, the operator’s main interest is filling the zone, not policing it.

Transshipment. Goods that are only passing through are often outside the scope of local enforcement, which targets imports. Complicated routes with several stops are a recognised warning sign: the 2020 FATF and Egmont Group report lists unnecessarily complex supply chains involving multiple transshipments among its business indicators, while cautioning that one indicator alone proves nothing.

Storage and handling. A zone is a place where goods can sit, be sorted, be repackaged and be sold on. Each step creates a new document, and a new document can break the link to the one before it.

Company registration and ownership data. The UAE’s 2020 evaluation is the clearest example in the record. It found 39 separate company registries, many created to promote the free zones; ten zones with no registry at all; and, for most of the rest, company information available to authorities only on request. It concluded that the fragmented system caused different levels of understanding and created regulatory arbitrage. It also said that the UAE’s risk assessment of legal persons did not cover the specific risks in commercial free zones, and that authorities could not give exact figures for how many companies operate in some of them.

None of this means zone business is dirty. The point is that the checks which usually sit at the border, at the company registry and at the bank are thinner or split across several bodies.

Real cases: Colón Free Zone, Panama and the UAE

Speed Joyeros and Argento Vivo (Colón Free Zone, Panama). The Colón Free Zone, set up in 1948, is described by the OECD as the second largest zone in the world. In 2015 it had more than 2,500 merchants and recorded imports above $10 billion and re-exports of $11.4 billion, nearly all to countries in the Americas. In a joint US and Panamanian investigation, US officials identified two wholesale jewelry companies there, Speed Joyeros S.A. and Argento Vivo S.A., as launderers of US drug proceeds through the Black Market Peso Exchange. The US Department of Justice said Colombian customers laundered millions of dollars by buying jewelry in bulk, with the money arriving as cash pick-ups, wire transfers, cashier’s checks and third-party checks, and that the two firms did more than $100 million of business a year. Yardena Hebroni and both companies pleaded guilty to money laundering in the Eastern District of New York; her co-defendant Eliahu Mizrani, a fugitive for a time, also pleaded guilty and was sentenced in February 2008. About ten tons of gold, silver, gemstones and watches seized in Panama were transferred to the United States, worth more than $40 million, which DOJ called the first bilateral US and Panama investigation to result in a Colón Free Zone company being seized and brought to justice in the United States. For how the underlying peso scheme works, see the Black Market Peso Exchange page.

Panama’s evaluation and grey listing. The GAFILAT mutual evaluation of Panama, published in January 2018, rated the Colón zone high risk in the national risk assessment. It noted large amounts of cash in the zone, and said zone firms were exposed to smuggling, customs fraud and copyright crimes, which had been predicate crimes for laundering since 2014. Supervisors had focused on the zone: 36% of the supervision visits by the responsible agency went to zone firms. Even so, evaluators found the firms were not applying anti-money-laundering measures in proportion to the risks. The very low number of suspicious transaction reports (13 since a 2015 law took effect) was judged inconsistent with the risk. The evaluation also reported an investigation of a zone businessman suspected of using the zone to give drug cash from Mexico and Central America an appearance of legitimacy. FATF placed Panama under increased monitoring in June 2019, over broader gaps including supervision of non-financial businesses, beneficial ownership and the monitoring of offshore entities. FATF’s published description of the action plan does not mention the zone. Panama left the list in October 2023.

The UAE’s zones. The 2020 UAE evaluation found that the country, with 29 commercial and 2 financial free zones, faced fragmented supervision that could lead to regulatory arbitrage. It also named the Dubai Multi Commodities Centre (DMCC) and the Jebel Ali Free Zone as busy centres for precious-metals activity, and noted that understanding of beneficial ownership rules was better developed in DMCC, Jebel Ali and the Ras Al Khaimah zone than in other commercial zones. Outside the financial zones, it found, supervision of non-financial businesses such as dealers in precious metals and real estate agents was very limited. FATF placed the UAE under increased monitoring in February 2022, citing among other items weaknesses in supervision of non-financial businesses and the misuse of legal persons, and removed it in February 2024.

How does it get caught?

• Opening the zone to inspectors. The 2019 OECD Recommendation asks countries to let authorities require data and carry out checks at any time on goods stored, made or handled in a zone, to supervise the perimeter and entry points, and to bar people convicted of economic crime from operating there. The Code of Conduct for Clean Free Trade Zones asks zones to allow unobstructed access, keep digital records of every shipment in and out for at least five years, and cooperate with investigators.
• Naming the real owner. The Recommendation also asks that zone operators tell authorities who their clients are, and who the principal is when a client acts as an agent.
• Matching both ends of the trade. Customs data on what left one country and what arrived in another can expose mismatched values and quantities, which is the approach described on the trade based money laundering page and in the detection guide.
• Reports from zone merchants. Businesses in zones can be required to file suspicious transaction reports. The Panama evaluation shows what it looks like when they file almost none, and the FATF action plans for both Panama and the UAE targeted supervision of non-financial businesses and the filing of reports.
• Inter-agency and cross-border work. The Colón jewelry case succeeded because US and Panamanian authorities investigated together. In 2002 a multilateral group of officials from the United States, Panama, Venezuela, Colombia and Aruba, working with zone operators and merchants, called for better screening of zone merchants and an electronic customs reporting system to track goods through zones.
• Certification and pressure. The OECD’s certification scheme aims to let banks, insurers and logistics firms prefer zones that pass an independent check. The OECD said its first report on the Recommendation, in 2025, found most of its provisions had been well implemented by adherents.

For the wider detection picture, see the detection overview. For the gold and jewelry channel that appears in the Colón case, see gold and precious metals.

First published November 7, 2026 · Last updated November 7, 2026 · Legal statuses current as of November 2026